Other Basic Facts

Interest payments

Forms of issuance

Corporate bonds are issued in several forms:

Registered bonds. Some corporate bonds are issued as certificates, with the owner’s name printed on them. There are no coupons attached for the owner to submit for payment of interest. The issuer’s agent or trustee sends the interest to the bondholder at the proper intervals and forwards the principal at maturity.

Bearer bonds. These are bonds that have no name printed on them, and have coupons attached. Anonymous and highly negotiable, bearer bonds are virtually equivalent to cash. The Tax Reform Act of 1982 ended the issuance of such bonds in the United States, but many remain in circulation.

Book-entry bonds. These are bonds for which certificates are not available to investors. Just as registered bonds have largely supplanted bearer bonds, book entry is replacing certificates as the prevailing form of issuance. With book-entry securities, a bond issue has only one master, or global, certificate, which is kept at a securities depository. The investor's ownership of book-entry bonds is recorded in the investor’s brokerage account. The broker, in turn, holds a corresponding interest in the global certificate that is held by the depository. All interest and principal payments are forwarded to the depository, and from there to the brokerage account.

Minimum investment

For OTC bonds, the minimum investment is usually $5,000. Listed bonds are issued and sold in $1,000 denominations.

Payment terms

When you buy a corporate bond (or other security), you must make sure that payment arrives at the broker’s office within three business days. Some brokers require that you have your payment on deposit before they will execute your purchase. If you sell a bond, you will receive the broker’s payment in approximately three business days.

Sources of information

If you are interested in a new or proposed bond offering, ask your broker for a prospectus, the official offering statement the issuer must file with the Securities and Exchange Commission. Detailed information on new bond issues is provided as well by two of the rating agencies in their weekly publications—Moody’s Credit Perspectives and Standard & Poor’s CreditWeek. These two companies also publish information on existing bond issues. Check the Mergent Bond Record and Moody’s Manuals, or Standard & Poor’s Bond Guide and Standard & Poor’s Corporation Records. Most brokerage offices have these publications, as do many libraries.

Marketability

How quickly and easily a particular bond can be bought or sold determines its marketability. To the extent the term “marketability” is used interchangeably with “liquidity,” it also implies that the price of the security will not change much under normal market conditions. In general, for a bond to enjoy high marketability, there must be a large trading volume and a large number of dealers in the security.

Costs

Brokers often sell bonds from their firms’ inventory, in which case investors do not pay an outright commission. Rather, they pay a markup that is built into the price quoted for the bond. If a broker has to go out into the market to find a particular bond for a customer, a commission may be charged. Each brokerage firm establishes its own markups and commissions, which may vary depending on the size of the transaction and the type of bond you are purchasing.

All information and opinions contained in this publication were produced by the Securities Industry and Financial Markets Association from our membership and other sources believed by the Association to be accurate and reliable. By providing this general information, the Securities Industry and Financial Markets Association makes neither a recommendation as to the appropriateness of investing in fixed-income securities nor is it providing any specific investment advice for any particular investor. Due to rapidly changing market conditions and the complexity of investment decisions, supplemental information and sources may be required to make informed investment decisions.